Hi! It’s Tory Haggerty from Tuscan Club University’s Fair Lending School and welcome to another Fair Lending Short. Today I want to talk about the number of denials that you receive as an organization. Now you may feel that having few denials is a positive thing, but it can actually be an indicator of a problem when it comes to Fair Lending. For example if you originate a thousand loans in the year and you only have 5 denials, you’re either the most generous Lender on the planet or your Lenders are potentially screening applicants and encouraging people to withdraw their applications.
For example, a Lender may ask for an estimate of your credit score. If you say your credit score is around 500, they may tell you that their minimum credit score requirement is 600 and that it’s probably not worth applying. So now they’ve just collected information, probably have an application under Reg. B, and have communicated some informal underwriting, but they probably haven’t documented that. So you’ll literally have a denial under Reg B but because nothing’s in writing and they’ve been discouraged from applying, that loan won’t actually get denied and it won’t result in an adverse notice. Therein lies the problem.
Now, how can an external reviewer, like an auditor or an examiner know if your bank, credit union or mortgage company is doing that? Well it’s simple. You just look at the number of denials, and compare that with what makes sense for your organizational size or with what peers are doing. You’re going to want to monitor that and ask yourself if it makes sense or are our Lenders screening applicants and potentially discouraging people from applying?
If you think that you have an issue at your organization, you should train your Lenders on the process. Lenders should always encourage every applicant to go through the underwriting process and let that process work itself out. Then document it and issue an adverse action notice if the application ends up in a denial.
Thanks for reading!